UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15b-16 OF
THE SECURITIES EXCHANGE ACT OF 1934

For the month of October 2018

Commission File Number 001-35991
 
GRAÑA Y MONTERO S.A.A.
(Exact name of registrant as specified in its charter)

N/A
(Translation of registrant’s name into English)

Republic of Peru
(Jurisdiction of incorporation or organization)

Avenida Paseo de la República 4667, Lima 34, Surquillo, Lima
Peru
( Address of principal executive offices)



Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

 
Form 20-F
X
Form 40-F
 
 
 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): [ ]

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): [ ]
 


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

GRAÑA Y MONTERO S.A.A.

By: /s/ LUIS FRANCISCO DIAZ OLIVERO
Name: Luis Francisco Diaz Olivero
Title: Chief Executive Officer
Date: October 30, 2018
 
 

 
GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES



 
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE-MONTH PERIOD ENDED AT SEPTEMBER 30, 2017 AND 2018 (UNAUDITED); AND CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT DECEMBER 31, 2017 (AUDITED)
 




 
GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES


CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE-MONTH
PERIOD ENDED AT SEPTEMBER 30, 2017 AND 2018 (UNAUDITED); AND CONSOLIDATED
STATEMENT OF FINANCIAL POSITION AT DECEMBER 31, 2017 (AUDITED)


 
CONTENTS
Page
 
 
 
 
 
 
 
 
 
 
Condensed Interim Consolidated Statement of Financial Position
2
 
 
 
 
Condensed Interim Consolidated Income Statement
3
 
 
 
 
Condensed Interim Consolidated Statement of Comprehensive Income
4
 
 
 
 
Condensed Interim Consolidated Statement of changes in Equity
5
 
 
 
 
Condensed Interim Consolidated Statement of Cash Flows
6
 
 
 
 
Notes to the Condensed Interim Consolidated Financial Statements
7 - 27

 

S/   =   Peruvian Sol
US$   =   United States dollar


 
GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES
 
 
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(All amounts are expressed in thousands of S/ unless otherwise stated)
 
 
 
ASSETS            
       
As at
 
As at
       
December 31,
September 30,
   
Note
 
2017
 
2018
             
Current assets
           
Cash and cash equivalents
 
8
 
             626,180
 
             545,063
Financial asset at fair value through profit or loss
     
                    181
 
                    211
Trade accounts receivables, net
     
             992,724
 
             947,251
Unbilled work in progress, net
     
             584,753
 
             391,679
Accounts receivable from related parties
 
9
 
             100,752
 
               53,316
Other accounts receivable
     
             765,445
 
             774,657
Inventories, net
     
             770,711
 
             646,424
Prepaid expenses
     
               33,478
 
               37,892
       
          3,874,224
 
          3,396,493
             
Non-current assets classified as held for sale
     
               17,722
 
                       -
             
Total current assets
     
          3,891,946
 
          3,396,493
             
Non-current assets
           
Long-term trade accounts receivable, net
     
             848,590
 
          1,195,251
Long-term unbilled work in progress, net
     
               87,410
 
               30,858
Long-term accounts receivable from related parties
9
 
             773,930
 
             765,569
Prepaid expenses
     
               38,082
 
               40,917
Other long-term accounts receivable
     
             470,852
 
             441,605
Investments in associates and joint ventures
 
10
 
             268,671
 
             266,052
Investment property
     
               45,687
 
               43,704
Property, plant and equipment, net
 
11
 
             865,735
 
             567,254
Intangible assets, net
 
11
 
             940,070
 
             916,618
Deferred income tax asset
     
             436,697
 
             491,841
Total non-current assets
     
          4,775,724
 
          4,759,669
             
             
Total assets
     
          8,667,670
 
          8,156,162
LIABILITIES AND EQUITY
           
       
As at
 
As at
       
December 31,
September 30,
   
Note
 
2017
 
2018
             
Current liabilities
           
Borrowings
 
12
 
          1,056,764
 
             948,648
Bonds
 
14
 
               36,655
 
               37,712
Trade accounts payable
     
          1,453,046
 
          1,339,175
Accounts payable to related parties
 
9
 
               55,174
 
               80,638
Current income tax
     
               85,543
 
               55,127
Other accounts payable
     
             848,500
 
             779,033
Provisions
 
15
 
               13,503
 
                 6,718
       
          3,549,185
 
          3,247,051
             
Non-current liabilities
           
Borrowings
 
12
 
             633,299
 
             518,718
Long-term bonds
 
14
 
             910,912
 
             901,502
Other long-term accounts payable
     
             852,473
 
             797,051
Long-term accounts payable to related parties
 
9
 
               25,954
 
               22,313
Provisions
 
15
 
               33,914
 
               33,319
Derivative financial instruments
     
                    383
 
                      72
Deferred income tax liability
     
               72,472
 
               98,049
Total non-current liabilities
     
          2,529,407
 
          2,371,024
Total liabilities
     
          6,078,592
 
          5,618,075
             
Equity
           
Capital
 
16
 
             660,054
 
             660,054
Legal reserve
     
             132,011
 
             132,011
Optional reserve
     
               29,974
 
               29,974
Share Premium
     
             881,795
 
             872,212
Other reserves
     
(169,671)
 
(167,620)
Retained earnings
     
             589,167
 
             606,374
Equity attributable to controlling interest in the Company
 
          2,123,330
 
          2,133,005
Non-controlling interest
     
             465,748
 
             405,082
Total equity
     
          2,589,078
 
          2,538,087
Total liabilities and equity
     
          8,667,670
 
          8,156,162
 
The accompanying notes on pages 7 to 27 are an integral part of the consolidated financial statements.
- 2 -
 
CONSOLIDATED INCOME STATEMENT
                 
(All amounts are expressed in thousands of S/ unless otherwise stated)
             
                   
         
For the period of nine months
 
         
ended September 30,
 
   
Note
   
2017
   
2018
 
                   
                   
Revenues from construction activities
         
1,578,260
     
1,487,917
 
Revenues from services provided
         
1,396,830
     
1,353,037
 
Revenue from real estate and sale of goods
         
644,306
     
900,624
 
           
3,619,396
     
3,741,578
 
                       
Cost of construction activities
         
(1,520,446
)
   
(1,471,457
)
Cost of services provided
         
(1,224,248
)
   
(1,213,377
)
Cost of real estate and goods sold
         
(448,631
)
   
(463,294
)
     
17
     
(3,193,325
)
   
(3,148,128
)
Gross profit
           
426,071
     
593,450
 
                         
Administrative expenses
   
17
     
(244,218
)
   
(252,404
)
Other income and expenses
           
9,779
     
9,390
 
Gain from the sale of investments
           
248,595
     
41,895
 
Operating profit
           
440,227
     
392,331
 
                         
Financial expenses
           
(132,021
)
   
(187,091
)
Financial income
           
23,725
     
24,763
 
Share of the profit or loss in associates and joint
                       
ventures under the equity method of accounting
           
20,912
     
(2,288
)
Profit before income tax
           
352,843
     
227,715
 
Income tax
   
18
     
(127,449
)
   
(99,943
)
Profit (loss) for the year from continuing operations
           
225,394
     
127,772
 
                         
Profit for the year from discontinued operations
           
64,972
     
8,591
 
Profit (loss) for the period
           
290,366
     
136,363
 
                         
Profit (loss) attributable to:
                       
Owners of the Company
           
238,788
     
15,712
 
Non-controlling interest
           
51,578
     
120,651
 
             
290,366
     
136,363
 
                         
Earnings (loss) per share from continuing operations
                       
attributable to owners of the Company during
                       
the period
           
0.362
     
0.024
 
                         
                         
                         
The accompanying notes on pages 7 to 17 are an integral part of the consolidated financial statements.
 
 
 
- 3 -
 
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
           
(All amounts are expressed in thousands of S/ unless otherwise stated)
           
             
   
For the period of nine months
 
   
ended September 30,
 
   Note  
2017
   
2018
 
             
             
Profit (Loss) for the period
   
290,366
     
136,363
 
Other comprehensive income:
               
Items that will not be reclassified to profit or loss
               
Remeasurement of actuarial gains and losses, net of tax
   
(1,696
)
   
2,041
 
                 
Items that may be subsequently  reclassified to profit or loss
               
Cash flow hedge, net of tax
   
334
     
221
 
Foreign currency translation adjustment, net of tax
   
(1,393
)
   
9,721
 
Change in value of available-for-sale financial assets, net of tax
   
-
     
-
 
Transfer to profit or loss from sales of available-for-sale financial assets, net of tax
   
-
     
-
 
Exchange difference from net investment in a foreign operation, net of tax
   
4,653
     
(5,866
)
Transferencia a resultados de diferencia de cambio de inversión neta en el extranjero, neto de
impuestos
   
-
     
-
 
     
3,594
     
4,076
 
Other comprenhensive income for the period, net of tax
   
1,898
     
6,117
 
Total comprehensive income for the period
   
292,264
     
142,480
 
                 
Comprehensive income attributable to:
               
Owners of  the Company
   
240,887
     
19,258
 
Non-controlling interest
   
51,377
     
123,222
 
     
292,264
     
142,480
 
                 
Comprehensive income attributable to owners of the Company:
               
Continuing operations
   
184,904
     
11,866
 
Discontinued operations
   
55,983
     
7,392
 
     
240,887
     
19,258
 
                 
                 
The accompanying notes on pages 7 to 27 are an integral part of the consolidated financial statements.
         
                 
     
-
     
-
 
- 4 -
 
GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES                      
                               
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY               
FOR THE PERIOD OF THE NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2018                  
(All amounts are expressed in thousands of S/ unless otherwise stated)
 
   
Attributable to the controlling interests of the Company
             
   
Number
                     
Premium
                               
   
of shares
       
Legal
   
Optional
   
for issuance
   
Other
   
Retained
       
Non controlling
       
   
In thousands
   
Capital
   
reserve
   
reserve
   
of shares
   
reserves
   
earnings
   
Total
   
interest
   
Total
 
                                                             
                                                             
Balances as of January 1, 2017
   
660,054
     
660,054
     
132,011
     
29,974
     
882,464
     
(167,572
)
   
916,396
     
2,453,327
     
517,538
     
2,970,865
 
                                                                                 
Profit for the period
   
-
     
-
     
-
     
-
     
-
     
-
     
238,788
     
238,788
     
51,578
     
290,366
 
Cash flow hedge
   
-
     
-
     
-
     
-
     
-
     
317
     
-
     
317
     
17
     
334
 
Adjustment for actuarial gains and losses
   
-
     
-
     
-
     
-
     
-
     
-
     
(1,241
)
   
(1,241
)
   
(455
)
   
(1,696
)
Foreign currency translation adjustment
   
-
     
-
     
-
     
-
     
-
     
(1,580
)
   
-
     
(1,580
)
   
187
     
(1,393
)
Exchange difference from net investment in a foreign operation
   
-
     
-
     
-
     
-
     
-
     
4,603
     
-
     
4,603
     
50
     
4,653
 
Comprehensive income of the period
   
-
     
-
     
-
     
-
     
-
     
3,340
     
237,547
     
240,887
     
51,377
     
292,264
 
Transactions with shareholders:
                                                                               
- Dividend distribution
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(39,118
)
   
(39,118
)
- Contributions (devolution) of non-controlling shareholders, net
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(767
)
   
(767
)
- Additional acquisition of non-controlling
   
-
     
-
     
-
     
-
     
(408
)
   
-
     
-
     
(408
)
   
(154
)
   
(562
)
- Deconsolidation of former subsidiary
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(7,801
)
   
(7,801
)
Total transactions with shareholders
   
-
     
-
     
-
     
-
     
(408
)
   
-
     
-
     
(408
)
   
(47,840
)
   
(48,248
)
Balances as of September 30, 2017
   
660,054
     
660,054
     
132,011
     
29,974
     
882,056
     
(164,232
)
   
1,153,943
     
2,693,806
     
521,075
     
3,214,881
 
                                                                                 
Balances as of January 1, 2018
   
660,054
     
660,054
     
132,011
     
29,974
     
881,795
     
(169,671
)
   
589,167
     
2,123,330
     
465,748
     
2,589,078
 
Profit (loss) for the period
   
-
     
-
     
-
     
-
     
-
     
-
     
15,712
     
15,712
     
120,651
     
136,363
 
Cash flow hedge
   
-
     
-
     
-
     
-
     
-
     
210
     
-
     
210
     
11
     
221
 
Adjustment for actuarial gains and losses
   
-
     
-
     
-
     
-
     
-
     
-
     
1,495
     
1,495
     
546
     
2,041
 
Foreign currency translation adjustment
   
-
     
-
     
-
     
-
     
-
     
7,604
     
-
     
7,604
     
2,117
     
9,721
 
Exchange difference from net investment in a foreign operation
   
-
     
-
     
-
     
-
     
-
     
(5,763
)
   
-
     
(5,763
)
   
(103
)
   
(5,866
)
Comprehensive income of the period
   
-
     
-
     
-
     
-
     
-
     
2,051
     
17,207
     
19,258
     
123,222
     
142,480
 
Transactions with shareholders:
                                                                               
- Dividend distribution
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(98,621
)
   
(98,621
)
- Contributions (devolution) of non-controlling shareholders, net
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(51,805
)
   
(51,805
)
- Additional acquisition of non-controlling
   
-
     
-
     
-
     
-
     
(9,583
)
   
-
     
-
     
(9,583
)
   
(4,050
)
   
(13,633
)
- Deconsolidation of former subsidiary
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(29,412
)
   
(29,412
)
Total transactions with shareholders
   
-
     
-
     
-
     
-
     
(9,583
)
   
-
     
-
     
(9,583
)
   
(183,888
)
   
(193,471
)
Balances as of September 30, 2018
   
660,054
     
660,054
     
132,011
     
29,974
     
872,212
     
(167,620
)
   
606,374
     
2,133,005
     
405,082
     
2,538,087
 
                                                                                 
                                                                                 
The accompanying notes on pages 7 to 27 are an integral part of the consolidated financial statements.
                             
 
- 5 -
GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES
       
(All amounts are expressed in thousands of S/ unless otherwise stated)
       
                   
CONSOLIDATED STATEMENT OF CASH FLOWS
                 
                   
                   
         
For the period of nine months
 
         
ended September 30,
 
   
Note
   
2017
   
2018
 
                   
OPERATING ACTIVITIES
                 
Loss before income tax
         
432,024
     
236,306
 
Adjustments to  profit not affecting cash flows from
                     
operating activities:
                     
Depreciation
         
149,387
     
100,007
 
Amortization of other assets
         
71,046
     
83,582
 
Impairment of inventories
         
555
     
(21,614
)
Impairment of accounts receivable and other accounts receivable
     
123
     
11,936
 
Impairment of property, plant and equipment
   
12
     
334
     
4,993
 
Indemnification
           
-
     
(35
)
Profit on fair value of financial asset at fair value through profit or loss
     
(33
)
   
-
 
Other Provisions
   
15
     
1,490
     
2,790
 
Financial expense,net
           
138,930
     
126,943
 
Foreign exchange loss (gain) on loans
           
(30,766
)
   
19,215
 
Share of the profit and loss in associates and joint ventures
                 
under the equity method of accounting
   
11
     
(20,912
)
   
2,288
 
Reversal of provisions
   
15
     
(1,066
)
   
(5,042
)
Disposal of fixed assets
           
2,557
     
4,004
 
Disposal of investments at fair value through profit or loss
     
19
     
-
 
Profit on sale of property, plant and equipment
           
(17,016
)
   
5,235
 
Loss on sale of non-current asset held for sale
           
(25,724
)
   
-
 
Loss on sale from available-for-sale financial assets
           
-
     
1,529
 
Profit on sale of investments in subsidiaries
           
(244,313
)
   
(41,895
)
Loss on remeasurement of accounts receivable
           
(7,581
)
   
16,447
 
Net variations in assets and liabilities:
                       
Trade accounts receivable and unbilled working in progress
     
(157,010
)
   
(357,444
)
Other accounts receivable
           
(31,476
)
   
(9,609
)
Other accounts receivable from related parties
           
(16,240
)
   
34,290
 
Inventories
           
141,249
     
105,804
 
Pre-paid expenses and other assets
           
(10,768
)
   
(7,931
)
Trade accounts payable
           
306,108
     
13,402
 
Other accounts payable
           
154,084
     
(21,749
)
Other accounts payable to related parties
           
(65,789
)
   
94,982
 
Other provisions
           
(1,692
)
   
(6,626
)
Interest payment
           
(140,157
)
   
(135,211
)
Payments for purchases of intangibles - Concessions
           
(11,936
)
   
(8,864
)
Payment of income tax
           
(117,339
)
   
(159,926
)
Net cash provided by operating activities
           
498,088
     
87,807
 
                         
INVESTING ACTIVITIES
                       
Sale of available-for-sale investment
           
397,737
     
197,230
 
Sale of property, plant and equipment
           
53,385
     
24,337
 
Sale of financial asset at fair value through profit or loss
           
97
     
-
 
Sale of non-current assets held for sale
           
43,365
     
16,244
 
Interest received
           
6,024
     
23,637
 
Dividends received
           
1,622
     
653
 
Payment for purchase of investments properties
           
(1,034
)
   
(115
)
Payments for intangible purchase
           
(72,646
)
   
(84,735
)
Payments for purchase and contributions on investment in associate and joint ventures
     
(1
)
   
(3,771
)
Payments for property, plant and equipment purchase
           
(97,565
)
   
(48,626
)
Net cash provided by investing activities
           
330,984
     
124,854
 
                         
FINANCING ACTIVITIES
                       
Loans received
           
1,129,625
     
858,121
 
Amortization of loans received
           
(1,616,907
)
   
(1,018,569
)
Amortization of bonds issued
           
(28,796
)
   
(21,952
)
Payment for transaction costs for debt
           
(31,770
)
   
-
 
Dividends paid to non-controlling interest
           
(39,118
)
   
(98,621
)
Cash received (return of contributions )from non-controlling shareholders
     
(767
)
   
(26,416
)
Acquisition or sale of interest in a subsidiary of non-controlling shareholders
     
(562
)
   
(1,192
)
Net cash applied to financing activities
           
(588,295
)
   
(308,629
)
Net increase (net decrease) in cash
           
240,777
     
(95,968
)
Cash and cash equivalents at the beginning of the period
     
606,949
     
626,180
 
Cash and cash equivalents at the end of the period
   
8
     
847,726
     
530,212
 
                         
NON-CASH TRANSACTIONS:
                       
Acquisition of assets through finance leases
           
44,056
     
2,240
 
Recognition of non-current assets available for sale by the operations of the CCDS
     
255,898
     
-
 
Reclassification of the investment in the associate GSP to non-current assets classified as held for sale
     
727,519
     
-
 
Accounts payable to the non-controlling interest for purchase of investments
     
-
     
12,441
 
Contribution in inventories
           
-
     
25,389
 
Reclassification of corporate building to non-current assets classified as held for sale
     
56,703
         
                         
                         
The accompanying notes on pages 7 to 27 are an integral part of the consolidated financial statements.
 
 
- 6 -
GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES
 
 
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE-MONTH PERIOD ENDED AT SEPTEMBER 30, 2017 AND 2018 (UNAUDITED); AND, CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT DECEMBER 31, 2017 (AUDITED)

 
1.   GENERAL INFORMATION

Graña y Montero S.A.A. (hereinafter “the Company”) is the parent of the Graña y Montero Group (hereinafter “the Group”) and it is mainly engaged in holding investments in different Group companies. Additionally, the Company provides services of general management, financial management, commercial management, legal advisory and human resources management and office operating leasing to the Group’s companies.

The Group is a conglomerate of companies with operations including different business activities, the most significant are engineering and construction, infrastructure (public concession ownership and operation), real estate businesses and services.

These condensed interim consolidated financial statements as of September 30, 2018 were prepared and authorized for issuance by the Chief Financial Officer on October 30, 2018.

    2 .   BASIS OF PREPARATION

These condensed interim consolidated financial statements for the period ended September 30, 2018 were prepared in accordance with (IAS 34) “Interim financial reporting”. The condensed interim consolidated financial statements should be read in conjunction with the annual consolidated financial statements for the year ended December 31, 2017, which have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

The condensed interim consolidated financial statements are presented in thousands of Peruvian Soles, unless otherwise stated.

 
3.    SIGNIFICANT ACCOUNTING POLICIES

The accounting policies used in the preparation of these condensed interim consolidated financial statements are consistent with those applied in the preparation of the consolidated financial statements at December 31, 2017, except for the new international financial information regulations (IFRS) effective as of January 1, 2018, which the Group is in the process of adoption.

 
4.    FINANCIAL RISK MANAGEMENT

Financial risk management is carried out by the Group’s Management. Management oversees the general management of risks in specific areas, such as foreign exchange rate risk, price risk, cash flow and fair value interest rate risk, credit risk, the use of derivative and non-derivative financial instruments and the investment of excess liquidity as well as financial risks and carries out periodic supervision and monitoring.
 
- 7 -

 
4.1
 Financial risk factors

The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk, price risk, fair value interest rate risk and cash flow interest rate risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance. The Group uses derivative financial instruments to hedge certain risk exposures in one of its subsidiaries and considers the use of other derivatives in the event that it identifies risks that may generate an adverse effect for the Group in the short and medium-term.
 
 
  a )    Market risks
 
i.
Foreign Exchange risk

The Group is exposed to exchange rate risk as a result of the transactions carried out locally in foreign currency and due to its operations abroad. As of September 30, 2018, and December 31, 2017, this exposure is mainly concentrated in fluctuations of U.S. dollar, the Chilean and Colombian Pesos.

ii.
Price risk

Management considers that the exposure of the Group to the price risk of its investments in mutual funds, bonds and equity securities is low, since the invested amounts are not significant. Any fluctuation in their fair value will not have any significant impact on the balances reported in the condensed interim consolidated financial statements.

iii.
Cash flow and fair value interest rate risk

The Group’s interest rate risk mainly arises from its long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk.
 
 
 
 b)    Credit risk

 
Credit risk arises from cash and cash equivalent and deposits with banks and financial institutions, as well as customer credit counterparties, including the outstanding balance of accounts receivable and committed transactions. For banks and financial institutions, only independently rated parties with a minimum rating of ‘A’ are accepted.

With respect to loans to related parties, the Group has measures in place to ensure the recovery of these loans through the controls maintained by the Corporate Finance Management and the performance evaluation conducted by the Board.
 
 
 c)    Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and cash equivalents, the availability of funding through an adequate number of sources of committed credit facilities and the capacity to close out positions in the market. Historically, the Group cash flows enabled it to maintain sufficient cash to meet its obligations. However, as of December 31, 2016, the Group started to experienced liquidity risk due to the early termination of the GSP concession agreement and the obligations assumed. As a consequence, the Group started a disinvestment plan to be able to meet the obligations resulting from this scenario.

Group Corporate Finance monitors rolling forecasts of the Group’s liquidity requirements to ensure it has sufficient cash to meet operational needs, so that the Group does not breach borrowing limits or covenants, where applicable, on any of its borrowing facilities. Less significant financing transactions are controlled by the Finance Management of each subsidiary.
 
- 8 -
 
 Such forecasting takes into consideration the Group’s debt financing plans, covenant compliance, compliance with internal statement of financial position ratio targets and, if applicable, external regulatory or legal requirements; for example, foreign currency restrictions.

 Surplus cash held by the operating entities over the balance required for working capital management are invested in interest-bearing checking accounts or time deposits, selecting instruments with appropriate maturities and sufficient liquidity.

 The table below analyzes the Group’s financial liabilities into relevant maturity groupings based on the remaining period from the date of the statement of financial position to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted   cash flows.
 
   
Less than
     
1-2
     
2-5
   
More than
       
   
1 year
   
years
   
years
   
5 years
   
Total
 
                                   
At December 31, 2017
                                 
Other financial liabilities (except
                                 
for finance leases)
   
1,003,500
     
336,913
     
290,253
     
-
     
1,630,666
 
Finance leases
   
72,864
     
41,877
     
24,022
     
638
     
139,401
 
Bonds
   
109,746
     
148,986
     
353,349
     
1,272,647
     
1,884,728
 
Trade accounts payable
   
1,453,046
     
-
     
-
     
-
     
1,453,046
 
Accounts payable to related parties
   
55,174
     
25,954
     
-
     
-
     
81,128
 
Other accounts payable
   
153,498
     
34,527
     
371,976
     
-
     
560,001
 
Other non-financial liabilities
   
-
     
383
     
-
     
-
     
383
 
     
2,847,828
     
588,640
     
1,039,600
     
1,273,285
     
5,749,353
 
                                         
At September 30, 2018
                                       
Other financial liabilities (except
                                       
for finance leases)
   
925,563
     
415,959
     
126,767
     
36,833
     
1,505,122
 
Finance leases
   
29,303
     
14,560
     
15,416
     
-
     
59,279
 
Bonds
   
109,868
     
151,863
     
354,229
     
1,198,908
     
1,814,868
 
Trade accounts payable
   
1,339,175
     
-
     
-
     
-
     
1,339,175
 
Accounts payable to related parties
   
80,638
     
22,313
     
-
     
-
     
102,951
 
Other accounts payable
   
271,349
     
2,883
     
485,808
     
-
     
760,040
 
Other non-financial liabilities
   
-
     
72
     
-
     
-
     
72
 
     
2,755,896
     
607,650
     
982,220
     
1,235,741
     
5,581,507
 
 
4.2
Capital management

 The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders, benefits for other stakeholders and tomaintain an optimal capital structure to reduce the cost of capital. From 2017 the situation of the Group, has lead Management to monitor deviations that might cause the non-compliance of covenants and may hinder renegotiation of liabilities (Note12).

 In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

 The Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including current and non-current borrowings), less cash and cash equivalents. Total capital is calculated as ‘equity’ as shown in the consolidated statement of financial position plus net debt.
 

- 9 -
 As of December 31, 2017, and September 30, 2018, the gearing ratio is presented below indicating the Company’s strategy to keep it in a range from 0.10 to 0.70.
 
   
At
   
At
 
   
December 31,
   
September 30,
 
   
2017
   
2018
 
             
Total borrowings and bonds
   
2,637,630
     
2,406,580
 
Less: Cash and cash equivalents
   
(626,180
)
   
(545,063
)
Net debt
   
2,011,450
     
1,861,517
 
Total equity
   
2,589,078
     
2,538,087
 
Total capital
   
4,600,528
     
4,399,604
 
                 
Gearing ratio
   
0.44
     
0.42
 
 
4.3
Fair value estimation

 
 For the classification of the type of valuation used by the Group for its financial instruments at fair value, the following levels of measurement have been established.

 -
Level 1: Measurement based on quoted prices in active markets for identical assets or liabilities.
 -
Level 2: Measurement based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices).
 -
Level 3: Measurement based on inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs, generally based on internal estimates and assumptions of the Group).
 
  The fair value of the financial assets classified as at fair value through profit or loss has been determined with observable information of Level 1.
 
Other financial instruments measured at fair value correspond to the interest rate swaps signed by subsidiary GMP S.A., by which a variable-interest instrument is changed to a fixed interest rate (cash flow hedge). The information used for determining the fair value of these instruments are Level 2 and has been determined based on the present value of discounted future cash flows applied to the interest-rate change projections of Citibank N.A.

The carrying amounts of cash and cash equivalents correspond to their fair values. The Company considers that the carrying amount of trade accounts receivable and payable is similar to their fair values. The fair value of financial liabilities, disclosed in Note 12, has been estimated by discounting the future contractual cash flows at the interest rate currently prevailing in the market and which is available to the Company for similar financial instruments (Level 2).
 
   5.    CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
 
 Estimates and judgments used are continuously evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
 
In preparing these condensed interim consolidated financial statements, the significant judgements made by management in applying the Group’s accounting policies and the key sources of uncertainty were the same as those that applied to the consolidated financial statements for the year ended December 31, 2017.
 
   6.    SEASONALITY OF OPERATIONS

The Group shows no seasonality in the operations of any of its subsidiaries; operations are carried out regularly during the course of the period.
- 10 -
 7.   SEGMENT INFORMATION

Operating segments are reported consistently with the internal reports that are reviewed by the Group’ chief decision-maker; that is, the Executive Committee, which is led by the Chief Executive Officer. This Committee is responsible for allocating resources and evaluating the performance of each operating segment.

The Group's operating segments are assessed by the activities of the following business units: (i) engineering and construction, (ii) infrastructure, (iii) real estate and (iv) technical services.

As set forth under IFRS 8, reportable segments by significance of income are: ‘engineering and construction’ and ‘infraestructure’. However, the Group has voluntarily decided to report on all its operating segments as detailed in this Note.

Inter-segmental sales transactions are entered into at prices that are similar to those that would have been agreed to with unrelated third parties. Revenues from external customers reported are measured in a manner consistent with the basis of preparation of the financial statements.

Group sales and receivables are not concentrated on a few customers. There is no external customer that represents 10% or more of the Goup’s revenue.

The table below shows the Group’s financial statements by operating segments:
 

- 11 -
 
 
Operating segments financial position
Segment reporting
         
Infrastructure
                               
   
Engineering
and
construction
   
Energy
   
Toll roads
   
Transportation
   
Water
treatment
   
Real estate
   
Technical services
   
Parent
Company Operations
   
Eliminations
   
Consolidated
 
As of December 31, 2017
                                                           
Assets.-
                                                           
Cash and cash equivalent
   
184,401
     
43,878
     
121,901
     
161,073
     
4,204
     
85,187
     
21,904
     
3,632
     
-
     
626,180
 
Financial asset at fair value through profit or loss
   
181
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
181
 
Trade accounts receivables
   
368,303
     
64,364
     
128,124
     
108,706
     
604
     
45,897
     
274,103
     
419
     
2,204
     
992,724
 
Work in progress
   
578,723
     
-
     
-
     
-
     
-
     
-
     
-
     
6,030
     
-
     
584,753
 
Accounts receivable from related parties
   
230,607
     
2,746
     
62,525
     
3,072
     
8,852
     
69,382
     
9,947
     
66,059
     
(352,438
)
   
100,752
 
Other accounts receivable
   
518,123
     
55,959
     
66,765
     
31,381
     
1,922
     
40,026
     
38,527
     
12,742
     
-
     
765,445
 
Inventories
   
46,499
     
15,093
     
8,685
     
19,457
     
-
     
643,882
     
45,512
     
190
     
(8,607
)
   
770,711
 
Prepaid expenses
   
4,470
     
1,168
     
2,354
     
10,312
     
164
     
216
     
14,037
     
757
     
-
     
33,478
 
Non-current assets classified as held for sale
   
17,722
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
17,722
 
Total current assets
   
1,949,029
     
183,208
     
390,354
     
334,001
     
15,746
     
884,590
     
404,030
     
89,829
     
(358,841
)
   
3,891,946
 
                                                                                 
Long-term trade accounts receivable
   
-
     
-
     
14,747
     
793,991
     
-
     
-
     
39,852
     
-
     
-
     
848,590
 
Long-term work in progress
   
58,997
     
-
     
28,413
     
-
     
-
     
-
     
-
     
-
     
-
     
87,410
 
Long-term accounts receivable from related parties
   
258,479
     
-
     
27,660
     
-
     
-
     
-
     
474
     
636,941
     
(149,624
)
   
773,930
 
Prepaid expenses
   
-
     
-
     
24,585
     
13,115
     
892
     
-
     
-
     
-
     
(510
)
   
38,082
 
Other long-term accounts receivable
   
75,030
     
53,917
     
11,159
     
255,179
     
7,348
     
9,811
     
1,712
     
56,696
     
-
     
470,852
 
Investments in associates and joint ventures
   
111,513
     
7,344
     
-
     
-
     
-
     
1
     
10,113
     
2,206,230
     
(2,066,530
)
   
268,671
 
Investment property
   
-
     
-
     
-
     
-
     
-
     
45,687
     
-
     
-
     
-
     
45,687
 
Property, plant and equipment
   
509,700
     
171,226
     
18,572
     
580
     
60
     
11,621
     
100,936
     
70,627
     
(17,587
)
   
865,735
 
Intangible assets
   
203,390
     
160,288
     
492,424
     
323
     
-
     
1,022
     
47,332
     
24,031
     
11,260
     
940,070
 
Deferred income tax asset
   
165,227
     
5,507
     
11,057
     
-
     
-
     
10,316
     
46,470
     
192,088
     
6,032
     
436,697
 
Total non-current assets
   
1,382,336
     
398,282
     
628,617
     
1,063,188
     
8,300
     
78,458
     
246,889
     
3,186,613
     
(2,216,959
)
   
4,775,724
 
Total assets
   
3,331,365
     
581,490
     
1,018,971
     
1,397,189
     
24,046
     
963,048
     
650,919
     
3,276,442
     
(2,575,800
)
   
8,667,670
 
Liabilities.-
                                                                               
Borrowings
   
591,987
     
46,924
     
2,589
     
-
     
-
     
162,031
     
139,821
     
113,412
     
-
     
1,056,764
 
Bonds
   
-
     
-
     
24,361
     
12,294
     
-
     
-
     
-
     
-
     
-
     
36,655
 
Trade accounts payable
   
955,015
     
62,659
     
85,329
     
81,161
     
132
     
43,724
     
189,553
     
36,412
     
(939
)
   
1,453,046
 
Accounts payable to related parties
   
114,198
     
3,664
     
60,857
     
83,841
     
14
     
37,396
     
14,428
     
88,546
     
(347,770
)
   
55,174
 
Current income tax
   
29,379
     
1,282
     
1,122
     
-
     
161
     
45,299
     
8,300
     
-
     
-
     
85,543
 
Other accounts payable
   
492,362
     
12,487
     
68,994
     
27,058
     
49
     
63,654
     
109,904
     
73,992
     
-
     
848,500
 
Provisions
   
6,682
     
5,204
     
-
     
-
     
-
     
20
     
1,597
     
-
     
-
     
13,503
 
Total current liabilities
   
2,189,623
     
132,220
     
243,252
     
204,354
     
356
     
352,124
     
463,603
     
312,362
     
(348,709
)
   
3,549,185
 
                                                                                 
Borrowings
   
127,773
     
101,549
     
1,945
     
-
     
-
     
12,010
     
26,458
     
363,564
     
-
     
633,299
 
Long-term bonds
   
-
     
-
     
319,549
     
591,363
     
-
     
-
     
-
     
-
     
-
     
910,912
 
Other long-term accounts payable
   
379,043
     
-
     
52,349
     
349,987
     
158
     
32,058
     
36,409
     
2,469
     
-
     
852,473
 
Long-term accounts payable to related parties
   
4,306
     
-
     
836
     
89,023
     
23,445
     
-
     
30,739
     
32,102
     
(154,497
)
   
25,954
 
Provisions
   
8,587
     
16,707
     
-
     
-
     
-
     
-
     
3,365
     
5,255
     
-
     
33,914
 
Derivative financial instruments
   
-
     
383
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
383
 
Deferred income tax liability
   
26,633
     
8,957
     
8,606
     
20,789
     
210
     
-
     
7,277
     
-
     
-
     
72,472
 
Total non-current liabilities
   
546,342
     
127,596
     
383,285
     
1,051,162
     
23,813
     
44,068
     
104,248
     
403,390
     
(154,497
)
   
2,529,407
 
Total liabilities
   
2,735,965
     
259,816
     
626,537
     
1,255,516
     
24,169
     
396,192
     
567,851
     
715,752
     
(503,206
)
   
6,078,592
 
Equity attributable to controlling interest in the Company
   
487,923
     
299,411
     
323,987
     
106,256
     
(123
)
   
217,290
     
82,100
     
2,547,328
     
(1,940,842
)
   
2,123,330
 
Non-controlling interest
   
107,477
     
22,263
     
68,447
     
35,417
     
-
     
349,566
     
968
     
13,362
     
(131,752
)
   
465,748
 
Total liabilities and equity
   
3,331,365
     
581,490
     
1,018,971
     
1,397,189
     
24,046
     
963,048
     
650,919
     
3,276,442
     
(2,575,800
)
   
8,667,670
 

- 12 -


Operating segments financial position
                                                           
Segment reporting
                                                           
         
Infrastructure
                               
   
Engineering
and
construction
   
Energy
   
Toll roads
   
Transportation
   
Water
treatment
   
Real estate
   
Technical services
   
Parent
Company Operations
   
Eliminations
   
Consolidated
 
As of September, 2018
                                                           
Assets.-
                                                           
Cash and cash equivalent
   
135,693
     
30,619
     
105,927
     
169,624
     
6,270
     
74,606
     
11,894
     
10,430
     
-
     
545,063
 
Financial asset at fair value through profit or loss
   
211
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
211
 
Trade accounts receivables
   
169,276
     
84,973
     
146,295
     
198,883
     
666
     
69,666
     
277,315
     
177
     
-
     
947,251
 
Work in progress
   
383,829
     
-
     
-
     
-
     
-
     
-
     
-
     
7,850
     
-
     
391,679
 
Accounts receivable from related parties
   
191,041
     
258
     
31,411
     
3,131
     
8,852
     
62,008
     
30,251
     
69,971
     
(343,607
)
   
53,316
 
Other accounts receivable
   
495,043
     
55,292
     
37,489
     
40,343
     
236
     
55,115
     
54,289
     
36,848
     
2
     
774,657
 
Inventories
   
30,733
     
17,204
     
9,840
     
26,968
     
-
     
538,072
     
42,272
     
-
     
(18,665
)
   
646,424
 
Prepaid expenses
   
3,209
     
2,339
     
2,963
     
14,996
     
196
     
186
     
12,312
     
1,691
     
-
     
37,892
 
Total current assets
   
1,409,035
     
190,685
     
333,925
     
453,945
     
16,220
     
799,653
     
428,333
     
126,967
     
(362,270
)
   
3,396,493
 
                                                                                 
Long-term trade accounts receivable
   
75,228
     
-
     
40,738
     
1,042,343
     
-
     
-
     
36,942
     
-
     
-
     
1,195,251
 
Long-term work in progress
   
-
     
-
     
30,858
     
-
     
-
     
-
     
-
     
-
     
-
     
30,858
 
Long-term accounts receivable from related parties
   
264,613
     
-
     
38,561
     
-
     
-
     
-
     
866
     
761,873
     
(300,344
)
   
765,569
 
Prepaid expenses
   
-
     
-
     
34,199
     
6,377
     
853
     
-
     
-
     
-
     
(512
)
   
40,917
 
Other long-term accounts receivable
   
253,289
     
56,497
     
7,862
     
82,426
     
7,346
     
7,173
     
668
     
26,344
     
-
     
441,605
 
Investments in associates and joint ventures
   
103,453
     
7,948
     
-
     
-
     
-
     
3,768
     
7,837
     
2,319,330
     
(2,176,284
)
   
266,052
 
Investment property
   
-
     
-
     
-
     
-
     
-
     
43,704
     
-
     
-
     
-
     
43,704
 
Property, plant and equipment
   
228,415
     
163,686
     
15,480
     
1,071
     
99
     
9,783
     
87,487
     
69,015
     
(7,782
)
   
567,254
 
Intangible assets
   
171,738
     
191,730
     
476,403
     
702
     
-
     
1,104
     
40,643
     
23,782
     
10,516
     
916,618
 
Deferred income tax asset
   
196,692
     
4,944
     
3,758
     
-
     
-
     
16,891
     
53,290
     
209,458
     
6,808
     
491,841
 
Total non-current assets
   
1,293,428
     
424,805
     
647,859
     
1,132,919
     
8,298
     
82,423
     
227,733
     
3,409,802
     
(2,467,598
)
   
4,759,669
 
Total assets
   
2,702,463
     
615,490
     
981,784
     
1,586,864
     
24,518
     
882,076
     
656,066
     
3,536,769
     
(2,829,868
)
   
8,156,162
 
Liabilities.-
                                                                               
Borrowings
   
267,109
     
43,843
     
28,611
     
211,602
     
-
     
129,003
     
197,359
     
71,121
     
-
     
948,648
 
Bonds
   
-
     
-
     
24,656
     
13,056
     
-
     
-
     
-
     
-
     
-
     
37,712
 
Trade accounts payable
   
821,075
     
59,077
     
85,706
     
116,900
     
162
     
27,504
     
185,959
     
42,792
     
-
     
1,339,175
 
Accounts payable to related parties
   
129,733
     
3,924
     
27,672
     
85,611
     
-
     
35,853
     
22,207
     
109,244
     
(333,606
)
   
80,638
 
Current income tax
   
5,334
     
2,617
     
302
     
-
     
220
     
25,206
     
21,448
     
-
     
-
     
55,127
 
Other accounts payable
   
426,999
     
20,913
     
57,543
     
24,398
     
337
     
118,675
     
86,444
     
43,724
     
-
     
779,033
 
Provisions
   
395
     
5,034
     
-
     
-
     
-
     
165
     
1,124
     
-
     
-
     
6,718
 
Total current liabilities
   
1,650,645
     
135,408
     
224,490
     
451,567
     
719
     
336,406
     
514,541
     
266,881
     
(333,606
)
   
3,247,051
 
                                                                                 
Borrowings
   
11,742
     
93,167
     
828
     
-
     
-
     
11,479
     
8,975
     
392,527
     
-
     
518,718
 
Long-term bonds
   
-
     
-
     
305,017
     
596,485
     
-
     
-
     
-
     
-
     
-
     
901,502
 
Other long-term accounts payable
   
487,271
     
-
     
40,955
     
209,612
     
312
     
26,161
     
30,169
     
2,571
     
-
     
797,051
 
Long-term accounts payable to related parties
   
9,022
     
-
     
5,036
     
83,515
     
23,322
     
-
     
27,900
     
183,950
     
(310,432
)
   
22,313
 
Provisions
   
7,863
     
18,247
     
-
     
-
     
-
     
-
     
1,954
     
5,255
     
-
     
33,319
 
Derivative financial instruments
   
-
     
72
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
72
 
Deferred income tax liability
   
27,080
     
22,927
     
8,135
     
32,766
     
198
     
-
     
6,943
     
-
     
-
     
98,049
 
Total non-current liabilities
   
542,978
     
134,413
     
359,971
     
922,378
     
23,832
     
37,640
     
75,941
     
584,303
     
(310,432
)
   
2,371,024
 
Total liabilities
   
2,193,623
     
269,821
     
584,461
     
1,373,945
     
24,551
     
374,046
     
590,482
     
851,184
     
(644,038
)
   
5,618,075
 
Equity attributable to controlling interest in the Company
   
433,299
     
321,329
     
330,653
     
159,689
     
(33
)
   
208,817
     
58,090
     
2,672,304
     
(2,051,143
)
   
2,133,005
 
Non-controlling interest
   
75,541
     
24,340
     
66,670
     
53,230
     
-
     
299,213
     
7,494
     
13,281
     
(134,687
)
   
405,082
 
Total liabilities and equity
   
2,702,463
     
615,490
     
981,784
     
1,586,864
     
24,518
     
882,076
     
656,066
     
3,536,769
     
(2,829,868
)
   
8,156,162
 

- 13 -

Operating segment performance
                                                           
Segment Reporting
                                                           
         
Infrastructure
                               
   
Engineering
and
construction
   
Energy
   
Toll roads
   
Transportation
   
Water
treatment
   
Real
estate
   
Technical
services
   
Parent
Company
operations
   
Eliminations
   
Consolidated
 
Period 2017 -
                                                           
                                                             
                                                             
Revenue
   
1,734,476
     
318,313
     
386,225
     
213,077
     
2,297
     
443,581
     
777,438
     
51,819
     
(307,830
)
   
3,619,396
 
Gross profit (loss)
   
126,136
     
46,773
     
88,956
     
35,241
     
260
     
144,065
     
75,683
     
(44,331
)
   
(46,712
)
   
426,071
 
Administrative expenses
   
(116,957
)
   
(12,032
)
   
(24,406
)
   
(9,508
)
   
(255
)
   
(13,600
)
   
(69,373
)
   
(46,752
)
   
48,665
     
(244,218
)
Other income and expenses
   
2,921
     
566
     
522
     
(675
)
   
-
     
(2,863
)
   
8,316
     
923
     
69
     
9,779
 
Gain from the sale of investments
   
-
     
-
     
-
     
-
     
-
     
49,002
     
-
     
195,378
     
4,215
     
248,595
 
Operating profit (loss)
   
12,100
     
35,307
     
65,072
     
25,058
     
5
     
176,604
     
14,626
     
105,218
     
6,237
     
440,227
 
Financial expenses
   
(33,486
)
   
(8,862
)
   
(5,282
)
   
(4,081
)
   
(35
)
   
(15,112
)
   
(21,476
)
   
(59,109
)
   
15,422
     
(132,021
)
Financial income
   
3,510
     
1,729
     
2,427
     
2,706
     
7
     
2,152
     
968
     
38,267
     
(28,041
)
   
23,725
 
Share of the profit or loss
                                                                               
in associates and joint ventures under the equity
                                                                               
method of accounting
   
35,781
     
1,198
     
-
     
-
     
-
     
455
     
685
     
211,763
     
(228,970
)
   
20,912
 
Profit (loss) before income tax
   
17,905
     
29,372
     
62,217
     
23,683
     
(23
)
   
164,099
     
(5,197
)
   
296,139
     
(235,352
)
   
352,843
 
Income tax
   
(2,261
)
   
(8,458
)
   
(17,921
)
   
(7,362
)
   
(151
)
   
(43,211
)
   
(904
)
   
(49,209
)
   
2,028
     
(127,449
)
Profit (loss) from continuing operations
   
15,644
     
20,914
     
44,296
     
16,321
     
(174
)
   
120,888
     
(6,101
)
   
246,930
     
(233,324
)
   
225,394
 
Profit from discontinued operations
   
62,471
     
-
     
-
     
-
     
-
     
-
     
2,317
     
-
     
184
     
64,972
 
Profit (loss) for the period
   
78,115
     
20,914
     
44,296
     
16,321
     
(174
)
   
120,888
     
(3,784
)
   
246,930
     
(233,140
)
   
290,366
 
                                                                                 
                                                                                 
                                                                                 
Profit (loss) attributable to:
                                                                               
                                                                                 
Owners of the Company
   
71,784
     
18,259
     
31,939
     
12,241
     
(174
)
   
60,851
     
(3,304
)
   
247,018
     
(199,826
)
   
238,788
 
Non-controlling interest
   
6,331
     
2,655
     
12,357
     
4,080
     
-
     
60,037
     
(480
)
   
(88
)
   
(33,314
)
   
51,578
 
     
78,115
     
20,914
     
44,296
     
16,321
     
(174
)
   
120,888
     
(3,784
)
   
246,930
     
(233,140
)
   
290,366
 

- 14 -

Operating segment performance
                                                           
Segment Reporting
                                                           
         
Infrastructure
                               
   
Engineering
and
construction
   
Energy
   
Toll roads
   
Transportation
   
Water
treatment
   
Real
estate
   
Technical
services
   
Parent
Company
operations
   
Eliminations
   
Consolidated
 
Period 2018 -
                                                           
                                                             
                                                             
Revenue
   
1,360,604
     
421,351
     
536,498
     
468,015
     
2,410
     
517,876
     
833,630
     
54,003
     
(452,809
)
   
3,741,578
 
Gross profit (loss)
   
34,839
     
97,909
     
84,087
     
95,275
     
361
     
275,897
     
43,485
     
(21,705
)
   
(16,698
)
   
593,450
 
Administrative expenses
   
(99,251
)
   
(14,808
)
   
(25,945
)
   
(7,871
)
   
(187
)
   
(27,104
)
   
(65,328
)
   
(44,353
)
   
32,443
     
(252,404
)
Other income and expenses
   
6,518
     
1,193
     
17
     
-
     
-
     
(1,318
)
   
(3,249
)
   
8,749
     
(2,520
)
   
9,390
 
Gain from the sale of investments
   
41,895
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
41,895
 
Operating profit (loss)
   
(15,999
)
   
84,294
     
58,159
     
87,404
     
174
     
247,475
     
(25,092
)
   
(57,309
)
   
13,225
     
392,331
 
Financial expenses
   
(54,364
)
   
(11,086
)
   
(21,101
)
   
(5,050
)
   
-
     
(13,600
)
   
(26,483
)
   
(78,555
)
   
23,148
     
(187,091
)
Financial income
   
8,199
     
501
     
2,869
     
19,814
     
45
     
4,908
     
1,256
     
21,907
     
(34,736
)
   
24,763
 
Share of the profit or loss
                                                                               
in associates and joint ventures under the equity
                                                                               
method of accounting
   
21,983
     
1,156
     
-
     
-
     
-
     
-
     
1,234
     
115,608
     
(142,269
)
   
(2,288
)
(Loss)/profit before income tax
   
(40,181
)
   
74,865
     
39,927
     
102,168
     
219
     
238,783
     
(49,085
)
   
1,651
     
(140,632
)
   
227,715
 
Income tax
   
11,423
     
(22,423
)
   
(18,303
)
   
(30,926
)
   
(252
)
   
(68,720
)
   
13,928
     
15,746
     
(416
)
   
(99,943
)
(Loss)/Profit from continuing operations
   
(28,758
)
   
52,442
     
21,624
     
71,242
     
(33
)
   
170,063
     
(35,157
)
   
17,397
     
(141,048
)
   
127,772
 
Profit from discontinued operations
   
8,591
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
8,591
 
(Loss)/profit for the period
   
(20,167
)
   
52,442
     
21,624
     
71,242
     
(33
)
   
170,063
     
(35,157
)
   
17,397
     
(141,048
)
   
136,363
 
                                                                                 
                                                                                 
                                                                                 
Profit (loss) attributable to:
                                                                               
                                                                                 
Owners of the Company
   
(20,094
)
   
48,365
     
17,487
     
53,432
     
(33
)
   
44,243
     
(29,249
)
   
17,497
     
(115,936
)
   
15,712
 
Non-controlling interest
   
(73
)
   
4,077
     
4,137
     
17,810
     
-
     
125,820
     
(5,908
)
   
(100
)
   
(25,112
)
   
120,651
 
     
(20,167
)
   
52,442
     
21,624
     
71,242
     
(33
)
   
170,063
     
(35,157
)
   
17,397
     
(141,048
)
   
136,363
 

- 15 -
No major changes occurred in total assets as compared to the amount stated in previous year-end financial statements.
 
There are no differences as compared to previous year-end financial statements based on segmentation or measurement of financial performance by segment.
 
8.                 CASH AND CASH EQUIVALENTS

This account comprises:
 
   
At
   
At
 
   
December 31,
   
September 30,
 
   
2017
   
2018
 
             
Cash on hand
   
16,468
     
1,722
 
In-transit remittances
   
2,798
     
4,173
 
Bank accounts
   
493,666
     
506,493
 
Time deposits
   
113,248
     
32,675
 
     
626,180
     
545,063
 
 
The above figures reconcile to the amount of cash shown in the statement of cash flows.
 
Reconciliation to the cash flow statement:
 
   
At
   
At
 
   
December 31,
   
September 30,
 
     
2017
     
2018
 
                 
Cash and cash equivalent
   
626,180
     
545,063
 
Bank overdrafts (Note 12)
   
(120
)
   
(14,851
)
Balances of the statement of cash flows
   
626,060
     
530,212
 
 
 
9.                 TRANSACTIONS WITH RELATED PARTIES
 
a)      Transactions with related parties -
 
Major transactions between the Company and its related parties are summarized as follows:
 
   
At
   
At
 
   
September 30,
   
September 30,
 
   
2017
   
2018
 
Revenue from sales of goods and services:
           
- Associates
   
1,330
     
196
 
- Joint operations
   
8,595
     
29,323
 
     
9,925
     
29,519
 
 
Inter-company services were agreed based on market terms as if they had been agreed to third parties.
 
- 16 -
 
b)      Balances of transactions with related parties

   
At December 31, 2017
   
At September 30, 2018
 
   
Receivable
   
Payable
   
Receivable
   
Payable
 
Current portion:
                       
Joint operations:
                       
Consorcio GyM Conciviles
   
43,435
     
-
     
16,203
     
-
 
Consorcio Rio Urubamba
   
8,964
     
-
     
9,023
     
-
 
Consorcio Peruano de Conservación
   
7,417
     
-
     
6,404
     
-
 
Consorcio Vial Quinua
   
-
     
2,162
     
-
     
2,157
 
Consorcio Italo Peruano
   
14,536
     
18,849
     
5,275
     
9,173
 
Consorcio La Gloria
   
1,688
     
1,358
     
1,358
     
1,020
 
Terminales del Perú
   
3,290
     
-
     
2,615
     
1,544
 
Consorcio Rio Mantaro
   
1,134
     
763
     
2,302
     
22,186
 
Consorcio Vial Sierra
   
2,355
     
1,854
     
-
     
-
 
Consorcio Constructor Chavimochic
   
1,959
     
5,817
     
2,092
     
6,060
 
Consorcio Energía y Vapor
   
-
     
72
     
-
     
-
 
Consorcio Ermitaño
   
1,067
     
6
     
981
     
189
 
Consorcio Menegua
   
39
     
-
     
40
     
-
 
Consorcio para la Atención y Mant. de Ductos
   
-
     
12,074
     
-
     
-
 
Consorcio Huacho Pativilca
   
-
     
2,377
     
-
     
80
 
Consorcio TNT Vial y Vives - DSD Chile Ltda
   
-
     
-
     
-
     
23,358
 
Other minors
   
12,182
     
6,973
     
4,321
     
2,612
 
     
98,066
     
52,305
     
50,614
     
68,379
 
                                 
Other related parties:
                               
Gaseoducto Sur Peruano S.A
   
2,407
     
-
     
2,407
     
-
 
Perú Piping Spools S.A.C.
   
279
     
185
     
295
     
250
 
Ferrovías Argentina
   
-
     
2,684
     
-
     
7,610
 
Arturo Serna
   
-
     
-
     
-
     
4,399
 
     
2,686
     
2,869
     
2,702
     
12,259
 
Current portion
   
100,752
     
55,174
     
53,316
     
80,638
 
                                 
Non-current portion:
                               
Gasoducto Sur Peruano S.A
   
773,930
     
-
     
765,569
     
-
 
Ferrovías Participaciones
   
-
     
21,648
     
-
     
22,313
 
Arturo Serna
   
-
     
4,306
     
-
     
-
 
Non-current portion
   
773,930
     
25,954
     
765,569
     
22,313
 


Receivables and payables are mainly of current maturity and do not have specific guarantees, except for the receivable account from GSP. Accounts receivable from related parties have maturity periods of 60 days and arise from sales of goods and services. These balances are non-interest-bearing, and during 2018 do not require a provision for impairment.
 
Current accounts payable to related parties mainly arise from transactions to provide services of engineering, construction, maintenance and others and have a maturity period of 60 days. Such accounts are not interest bearing because they are short-term.
 
- 17 -
 
10.               INVESTMENTS IN ASSOCIATES AND JOINT VENTURES
 
The movement of our investments in associates for the period ended September 30, 2017 and 2018 is as follows:

   
At
   
At
 
   
September 30,
   
September 30,
 
   
2017
   
2018
 
             
Opening balance
   
886,855
     
268,671
 
Contributions received
   
-
     
3,770
 
Dividends received
   
(1,873
)
   
(653
)
Equity interest in results
   
7,946
     
(2,288
)
Sale of Investment
   
(120,779
)
   
-
 
Reclasificación operación discontinua
   
(714,554
)
   
-
 
Conversion adjustment
   
127
     
(3,448
)
Closing balance
   
57,722
     
266,052
 
 
-      In February 2017 subsidiary Viva GyM S.A. signed a purchase-sales agreement comprising its equity interest (representing 22.5%) held in associate Promoción Inmobiliaria del Sur S.A. The agreed selling price was US$25 million (equivalent to S/81 million), which was fully paid.
 
-      On April 24, 2017 the Company signed a purchase-sale agreement for their total capital stock (representing 51%) held in their joint venture with Compañía Operadora de Gas del Amazonas S.A.C. (COGA). The selling price was agreed at US$21.5 million (equivalent to S/69.8 million), which was fully paid.
 
-      In June 2018, the subsidiary Viva GyM S.A. signed a partnership agreement with the company OBRATRES S.A.C, percentage of interest 37.5%, to develop a real estate project located at Calle Tacna 544 in Barranco, the project will consist of 31 departments, 52 parking lots and 24 warehouses.
 
 
11.               PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS 
 
For the period ended September 30, 2017 and 2018, the movement in property, plant and equipment and intangible assets accounts was as follows:
 
- 18 -
 
   
Property,
       
   
plant and
   
Intangibles
 
   
equipment
   
assets
 
             
Net cost at January 1, 2017
   
1,113,599
     
960,286
 
                 
Additions
   
141,621
     
104,095
 
Subsidiary deconsolidation
   
(83,441
)
   
(23,666
)
Transfers, disposals and adjustments
   
(76,795
)
   
(1,014
)
Deductions for sale of assets
   
(36,369
)
   
-
 
Depreciation, amortization
   
(147,656
)
   
(71,047
)
Net cost at September 30, 2017
   
910,959
     
968,654
 
                 
Net cost at January 1, 2018
   
865,735
     
940,070
 
                 
Additions
   
50,866
     
96,245
 
Subsidiary deconsolidation
   
(207,243
)
   
(16,510
)
Transfers, disposals and adjustments
   
(14,263
)
   
(19,605
)
Deductions for sale of assets
   
(29,572
)
   
-
 
Depreciation, amortization
   
(98,269
)
   
(83,582
)
Net cost at September 30, 2018
   
567,254
     
916,618
 
 
a)     Property, plant and equipment
 
As of September 30, 2017 and 2018, additions to property, plant and equipment comprise acquisition of machinery and equipment intended for the Group’s operations.
 
Depreciation of fixed assets and investment properties for the period is broken down in the statement of income as follows:
 
   
2017
   
2018
 
             
Cost of services and goods
   
102,114
     
83,246
 
Administrative expenses
   
11,047
     
6,613
 
(+) Depreciation discontinued operation
   
36,226
     
10,148
 
Total depreciation of property, plant and equipment and investment property
   
149,387
     
100,007
 
(-) Depreciation of investment property
   
(1,731
)
   
(1,738
)
Total depreciation of property, plant and equipment
   
147,656
     
98,269
 

b)     Intangible assets
 
As of September 30, 2017 and 2018, additions registered in intangible assets mainly comprise of investments in preparation of wells located in Lots I, III, IV and V to provide oil and hydrocarbon explotation services and in building  the second Ancón-Huacho-Pativilca road section of the Panamericana Norte highway (concession under intangible model).
 
i)     Goodwill
 
Management reviews the results of its businesses based on the type of economic activity carried out.
 
Goodwill allocated to cash-generating units are:
 
- 19 -
 
   
At
   
At
 
   
December 31,
   
September 30,
 
   
2017
   
2018
 
             
Engineering and construction
   
75,051
     
76,525
 
Electromechanical
   
20,737
     
20,737
 
Telecommunications services
   
6,720
     
6,819
 
IT equipment and services
   
930
     
930
 
Mining and construction services
   
13,366
     
-
 
     
116,804
     
105,011
 
 
As a result of the impairment testing on goodwill performed by Management on an annual basis the recoverable amount of the related cash-generating unit (CGU) is determined based on the higher of its value in use and fair value less cost of disposal.  Value in use is determined based on the future cash flows expected to be generated by the assessed CGU.
 
As of September 30, 2018 same criteria used  as those applied in the impairment test at December 31, 2017 that concluded there was no impairment in the CGU .

12.               BORROWINGS
 
This item comprises:
 
   
Total
   
Current
   
Non-current
 
   
At
   
At
   
At
   
At
   
At
   
At
 
   
December 31,
   
September 30,
   
December 31,
   
September 30,
   
December 31,
   
September 30,
 
   
2017
   
2018
   
2017
   
2018
   
2017
   
2018
 
                                     
Bank overdrafts
   
120
     
14,851
     
120
     
14,851
     
-
     
-
 
Bank loans
   
1,561,634
     
1,256,213
     
990,467
     
902,374
     
571,167
     
353,839
 
Finance leases
   
128,309
     
54,684
     
66,177
     
26,993
     
62,132
     
27,691
 
Other financial entities
   
-
     
141,618
     
-
     
4,430
     
-
     
137,188
 
     
1,690,063
     
1,467,366
     
1,056,764
     
948,648
     
633,299
     
518,718
 
 
a)     Bank loans
 
As of December 31, 2017 and September 30, 2018, this item comprises bank loans in local and foreign currencies for working capital purposes. These obligations bear interest at fixed rates which fluctuated between 3.30% and 13.9% in 2017 and between 1.6% and 13.8% in 2018.

                Current     Non-current  
               
At
   
At
   
At
   
At
 
   
Interest
   
Date of
   
December 31,
   
September 30,
   
December 31,
   
September 30,
 
   
rate
   
maturity
   
2017
   
2018
   
2017
   
2018
 
                                     
Graña y Montero S.A.A.
 
Libor USD 3M + de 4.9% a 5.5%
     
2018 / 2020
     
113,412
     
66,691
     
363,564
     
255,339
 
GyM S.A.
   
1.60% / 8.73%
 
   
2018 / 2019
     
551,413
     
244,360
     
95,376
     
1,313
 
GyM Ferrovías
 
Libor USD 1M + de 2%
     
2018
     
-
     
211,602
     
-
     
-
 
Viva GyM S.A.
   
7.00% / 12.00%
 
   
2018 / 2020
     
157,592
     
125,495
     
-
     
2,042
 
CAM Holding S.A.
   
4.68% / 13.76%
 
   
2018 / 2020
     
77,775
     
96,596
     
12,807
     
4,439
 
Adexus S.A.
   
5.90%
 
   
2018 / 2019
     
46,552
     
90,697
     
3,175
     
-
 
GMP S.A.
   
4.55% / 6.04%
 
   
2018 / 2020
     
42,911
     
39,894
     
96,245
     
90,706
 
CONCAR S.A.
   
6.50% / 17.75%
 
   
2019
     
812
     
27,039
     
-
     
-
 
                     
990,467
     
902,374
     
571,167
     
353,839
 
 
- 20 -
 

i)     Credit Suisse Syndicated Loan

In December 2015, the Group entered into a medium term loan credit agreement for up to US$200 million (equivalent to S/672 million), with Credit Suisse AG, Cayman Islands Branch and Credit Suisse Securities (USA) LLC.  The initial term of the loan was set at five years, with quarterly installments starting to be paid on the 18th month. The loan accrued interest at a rate of three months Libor plus 3.9% per year.  The proceeds were used to finance the equity interest in GSP.   On June 27, 2017, the Group renegotiated the terms of this loan to clear breaches related to the termination of the GSP concession.

As of September 30, 2018, the outstanding balance of the loan capital is US$37.5 million ( equivalent to S/123.8 million).

 
The agreement contains certain covenants, including the obligation by the Company to maintain certain financial ratios during the term of the agreement.  As of the date of this report, we are in breach of the Consolidated Leverage Ratio described at the consolidated financial statements for 2017.   The Company is in the process of obtaining the waiver from the lenders.  Additionally, the syndicated loan required to make available to the lenders the audited consolidated financial statements for the fiscal years of 2016 and 2017, which were presented on May 15, 2018 and July 2, 2018, respectively.

ii)     GSP Bridge Loan

At December 31, 2016, the current balance includes US$129 million (equivalent to S/433.3 million) of the corporate guarantee issued by the Company to secure the bridge loan given to GSP, which was enforceable at that date.  On June, 2017, the Company has reached a new term loan with Natixis, BBVA, SMBC and MUFJ for US$78.7 million (equivalent to S/264.8 million), the proceeds of which were used to repay the GSP bridge loan.  The maturity is June, 2020, with required prepayments to be made with the proceeds of asset sales of 40% in the first year and an additional 30% in the second year.

As of to date, the outstanding balance of the loan capital is US$63.5 million ( equivalent to S/209.6 million).

 
The new agreement contains certain covenants described at the consolidated financial statements for 2017. As of the date of this annual report, we are in default with respect to the consolidated leverage ratio.  The Company is in the process of obtaining the waiver from the lenders. Additionally, the syndicated loan required to make available to the lenders the audited  consolidated financial statements for the fiscal years of 2016 and 2017, which were presented on May 15, 2018 and July 2, 2018, respectively.

b)     Other financial entities

Securitization of Norvial flows

At May 29, 2018 the Company subscribes an agreement between the Company and Inversiones Concesiones Vial S.A.C. ("BCI Perú") -whith the intervention of Fondo de Inversiones BCI NV (“Fondo BCI”) and BCI Management Administradora General de Fondos S.A. (“BCI” Asset Management”) -  to monetize future dividends from Norvial S.A. to the Company. This operation has as a finality to reduce the indebtness of the Company.The amount of the transaction was US$42.3 millions and ended on June 11, 2018.
 
Likewise, it has been agreed that our company will have purchase options on 48.8% of Norvial's economic rights that BCI Peru will maintain through its participation in Inversiones en Autopistas S.A.. These options will be subject to certain conditions such as the expiration of different terms, recovery of the investment made with the funds of the BCI Fund (according to different economic calculations) and/or that a change of control occurs.
 
- 21 -
 
a)      Fair value of borrowings

The carrying amount and fair value of borrowings are broken down as follows:

 
Book value
 
Carrying amount
 
Fair value
 
Fair value
 
 
At
 
At
 
At
 
At
 
 
December 31,
 
September 30,
 
December 31,
 
September 30,
 
 
2017
 
2018
 
2017
 
2018
 
 
               
Bank overdrafts
   
120
     
14,851
     
120
     
14,851
 
Bank loans
   
1,561,634
     
1,256,213
     
1,627,000
     
1,507,951
 
Finance leases
   
128,309
     
54,684
     
141,040
     
81,620
 
Other financial entities
   
-
     
141,618
     
-
     
141,618
 
 
   
1,690,063
     
1,467,366
     
1,768,160
     
1,746,040
 
 
 
As of September 30, 2018, the fair value is based on cash flows discounted using a rate based on the borrowing rate of 2.4% and 11.0% (2.4% and 13.8%  in 2017).
It should be noted that the interest rate used are those applicable and negotiated by each Company.

13.      BONDS

This item is broken down as follows:
 
 
   
Total
     
Current
     
Non-current
 
 
At
 
At
 
At
 
At
 
At
 
At
 
 
December 31,
 
September 30,
 
December 31,
 
September 30,
 
December 31,
 
September 30,
 
 
2017
 
2018
 
2017
 
2018
 
2017
 
2018
 
 
                       
GyM Ferrovías
   
603,657
     
609,541
     
12,294
     
13,056
     
591,363
     
596,485
 
Norvial
   
343,910
     
329,673
     
24,361
     
24,656
     
319,549
     
305,017
 
 
   
947,567
     
939,214
     
36,655
     
37,712
     
910,912
     
901,502
 

 
 
a)
GyM Ferrovías S.A.

In February 2015 subsidiary GyM Ferrovías S.A. issued corporate bonds under the U.S. Regulation S. This issue was carried out in Peruvian Soles VAC (the Spanish acronym for constant value update) for a total amount of S/629 million. Maturity of these bonds is November 2039 and bear interest at a rate of 4.75% (plus VAC adjustment), they have a risk rating of AA+ (local grading) granted by  Apoyo & Asociados Internacionales Clasificadora de Riesgo. At September 30, 2018 the Group made a payment of S/65.1 million (S/52.7 million at September 30, 2017).

At September 30, 2017 and 2018 the account movement  was as follows:

   
2017
   
2018
 
             
Balance at January, 1
   
604,031
     
603,657
 
Amortization
   
(14,320
)
   
(7,611
)
Accrued interest
   
36,760
     
35,937
 
Interest paid
   
(22,802
)
   
(22,442
)
Balance at September, 30
   
603,669
     
609,541
 

As part of the process of bond structuring, GyM Ferrovías engaged to adhere to the following covenants: 
- 22 -

-      Debt service coverage ratio of not less than 1.2 times. 
-      Keeping a constant minimum balance of trust equal to a quarter of operating and maintenance costs (including VAT) 
-      Keeping a constant minimum balance of trust equal to two coupons as per schedule.

On August 23, 2017, GyM Ferrovias S. A. and Line One CPAO Purchaser LLC entered into the Sale and Purchase Agreement and Assignment of Rights Agreement regarding the CPAO (“Pago Anual por Inversiones Complementarias” in Spanish) derived from the Concession Agreement for up to US$316 million.

On August 23, 2017, GyM Ferrovias S. A. as Borrower, Mizuho Bank, Ltd. and Sumitomo Mitsui Banking Corporation as Lenders and Mizuho Bank, Ltd. as Administrative Agent entered into a US$80 million Working Capital loan agreement to partially finance the Expansion Project of Line 1 Lima Metro. As of September 30, 2018, US$64 million has been disbursed.

b)      Norvial S.A.

Between 2015 and 2016, the subsidiary Norvial S.A. issued the First Corporate Bond Program on the Lima Stock Exchange for a total S/365 million.  Risk rating agencies Equilibrium y Apoyo & Asociados Internacionales graded this debt instrument AA.

The capital raised was used to finance the construction of the Second Phase of Red Vial No.5 and the financing of VAT arising from a project-related expenses.

At September 30, 2017 and 2018 the account movement  was as follows:

   
2017
   
2018
 
             
Balance at January, 1
   
363,684
     
343,910
 
Amortization
   
(14,476
)
   
(14,341
)
Accrued interest
   
2,327
     
18,065
 
Capitalized interest
   
19,513
     
2,646
 
Interest paid
   
(21,710
)
   
(20,607
)
Balance at September, 30
   
349,338
     
329,673
 

As part of the process of bond structuring, Norvial S.A. engaged to adhere to the following covenants: 

-      Debt service coverage ratio of not less than 1.3 times.
-      Proforma gearing ratio lower than 4 times.

As of December 31,2017 and September 30, 2018 the Company has complied with its covenants for both bonds.

Fair value of the bonds of both Companies at September 30, 2018 amounted to S/1,070 million ( at December 31, 2017 amounted to S/1,040 million), which has been calculated based on the discounted cash flows, using rates between 4.09 % and 5.45% (rates between 4.49 % and 6.63% at December 31, 2017) which are within level 2 of the fair value hierarchy.
- 23 -
 
14.       PROVISIONS

This item is broken down based on the expectation of liquidation as follows:

   
At
   
At
 
   
December 31,
   
September 30,
 
   
2017
   
2018
 
             
Current portion
   
13,503
     
6,718
 
Non-current portion
   
33,914
     
33,319
 
     
47,417
     
40,037
 

The movement of this item as of September 30 , 2017 and September 30, 2018 is as follows:

         
Contingent
             
         
liabilities
   
Provision
       
   
Legal
   
resulting from
   
for well
       
   
claims
   
acquisitions
   
closure
   
Total
 
                         
At January 1, 2017
   
15,732
     
8,125
     
17,216
     
41,073
 
Additions
   
1,127
     
363
     
-
     
1,490
 
Reversals of provisions
   
(238
)
   
(828
)
   
(382
)
   
(1,448
)
Payments
   
(1,692
)
   
-
     
-
     
(1,692
)
Translation adjustments
   
(24
)
   
(1
)
   
-
     
(25
)
At September 30, 2017
   
14,905
     
7,659
     
16,834
     
39,398
 
                                 
At January 1, 2018
   
23,364
     
7,249
     
16,804
     
47,417
 
Additions
   
2,790
     
-
     
1,442
     
4,232
 
Reversals of provisions
   
(4,744
)
   
(298
)
   
-
     
(5,042
)
Payments
   
(6,626
)
   
-
     
-
     
(6,626
)
Translation adjustments
   
53
     
2
     
-
     
55
 
At September 30, 2018
   
14,838
     
6,953
     
18,246
     
40,037
 

15.  CAPITAL

As of December 31 , 2017 and September 30, 2018, the authorized, subscribed and paid-in capital, according to the Company’s bylaws as amended, is represented by 660,053,790 common shares   at S/1.00 par value each .

At December 31, 2017 a total of 259,302,745 shares were represented by ADS, equivalent to 51,860,549 ADS at a ratio of 5 shares per ADS; and a total of 249,083,050 shares were represented by ADS, equivalent to 49,816,770 ADS at September 30, 2018.


16.  EXPENSES BY NATURE

For the period ended   September 30, 2017 and 2018, this item comprises:
- 24 -

   
Cost of
       
   
goods
   
Administrative
 
At September 30, 2017
 
and services
   
expenses
 
             
Salaries, wages and fringe benefits
   
936,363
     
143,853
 
Services provided by third-parties
   
1,034,187
     
45,082
 
Purchase of goods
   
656,031
     
102
 
Other management charges
   
393,426
     
34,470
 
Depreciation
   
102,114
     
11,047
 
Amortization of intangibles
   
62,460
     
7,723
 
Taxes
   
7,752
     
1,921
 
Impairment of inventories
   
123
     
-
 
Impairment of accounts receivable
   
555
     
-
 
Impairment of property, plant and equipment
   
314
     
20
 
     
3,193,325
     
244,218
 
                 
At September 30, 2018
               
Salaries, wages and fringe benefits
   
1,007,832
     
114,323
 
Services provided by third-parties
   
893,620
     
77,359
 
Purchase of goods
   
705,621
     
42
 
Other management charges
   
376,810
     
48,000
 
Depreciation
   
83,246
     
6,613
 
Amortization of intangibles
   
76,746
     
5,432
 
Taxes
   
8,944
     
629
 
Impairment of accounts receivable
   
240
     
6
 
Recovery of impairment on inventory
   
(21,614
)
   
-
 
Impairment of fixed asset
   
4,993
     
-
 
Impairment of other account receivable
   
11,690
     
-
 
     
3,148,128
     
252,404
 

As of September 30, 2018, the subsidiary Viva GyM S.A. reverse the excess of provision for impairment in inventories and accounts receivable for S/21.6 million, reported in its results as a lower expense.

17.      INCOME TAX

These condensed interim consolidated financial statements for the period ended September 30, 2018, income tax expense is recognized based on management’s estimate of the weighted average annual income tax rate expected for the full financial year. The estimated average annual tax rate used for the year to September 30, 2018 is 43.89% (32.80% for the period ended September 30, 2017). The variation of the effective rate as compared to the previous year is due to the effect of the permanent differences in the income tax calculation.

18.  CONTINGENCIES, COMMITTMENTS AND GUARANTEES

As of September 30, 2018, contingencies held by the Group are substantially the same as those existing as of December 31, 2017.

In addition the Group had guarantee commitments with different financial institutions securing transactions in the amount of US$14.7 million.

19.  DIVIDENDS

As part of the covenants at the refinancing agreements mentioned in Note 12, the Company is unable to pay dividends until the cancellation of all liabilities related to these borrowings.
- 25 -

For the period ended September 30, 2018, the Group has paid dividends to its non-controlling subsidiaries participate by S/98.6 million (S/39.1 million for the same period in 2017).

20.   DISCONTINUED OPERATIONS

As part of the process of divestments of non-strategic assets initiated by the Company in 2017, Stracon GyM SA was sold, during the first semester of the year 2018.

a)
 STRACON GyM S.A.

On March 28, 2018, the Company signed an agreement for the sale of the total shares (representing 87.59%) on Stracon GyM. The selling price was agreed at US$76.8 million,   which was fully paid.

STRACON GyM S.A.
     
(net of intercompany transactions)
     
   
2018
 
   
From January 1
 
   
to March 31,
 
       
Revenue
   
236,368
 
Operating costs
   
(226,288
)
Finance costs, net
   
1,393
 
Operating profit from discontinued activities before taxation
   
11,473
 
Income tax expense
   
(6,527
)
Profit from discontinued ordinary activities after taxation
   
4,946
 
         
Profit from discontinued activities attributable to owners of the Company
   
4,332
 
         
Earnings per share relating to the discontinued operation are as follows:
       
Basic
   
0.063
 
         
Cash flows relating to the discontinued operation are as follows:
       
Operating cash flows
   
22,129
 
Investing cash flows
   
8,762
 
Financing cash flows
   
(24,464
)


 
b)
GMD S.A.

On June 6, 2017 the Company signed a purchase-sale agreement for their total share (representing 89.19%) of GMD S.A. The selling price was agreed at US$84.7 million (equivalent to S/269.9 million), which was fully paid.

The financial performance and cash flow information presented are for the five months ended May 31, 2017.
- 26 -

GMD S.A.
     
(Net of intercompany transactions)
     
   
2017
 
   
From January 1
 
   
to May 31,
 
       
Revenue
   
7,204
 
Operating costs
   
(10,567
)
Finance costs, net
   
(2,617
)
Operating loss from discontinued activities before taxation
   
(5,980
)
Income tax expense
   
(1,171
)
Loss from discontinued ordinary activities after taxation
   
(7,151
)
         
Loss from discontinued activities attributable to owners of the Company
   
(6,381
)
         
Losses per share relating to the discontinued operation are as follows:
       
Basic
   
(0.558
)
         
Cash flows relating to the discontinued operation are as follows:
       
Operating cash flows
   
10,220
 
Investing cash flows
   
(11,189
)
Financing cash flows
   
1,618
 


21.  EVENTS AFTER THE DATE OF THE STATEMENT OF FINANCIAL POSITION
 
On October 10, 2018, the Company, announced that at the Board of Directors meeting of Graña y Montero SAA, it was unanimously agreed to call a general meeting of shareholders to discuss the capital increase, through the issuance of preferential subscription rights that will be made available to investors only in Peru based on the provisions of the applicable Peruvian legislation. The funds of the capital increase approved will be destined to the equity strengthening of the Company and/or its subsidiaries.
 
- 27 -
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